Results of U.S. Architectural Coatings Industry Research Report for September

11.08.13

Each month, Northcoast Research surveys a large sample of paint retailers throughout the U.S. to get a sense for current business trends. Please note that of the three primary architectural coatings channels (paint stores, home centers and retail distributors), this survey is primarily reflective of the distributor channel which tends to see volume growth less than the industry; therefore, view the results as a directional indicator more so than absolute industry volumes. For inquiries regarding this report contact Kevin Hocevar at 216-468-6924 or kevin.hocevar@northcoastresearch.com.

Architectural Coatings Sales — Volumes Up 1.3% in September vs. Last Year
According to industry participants, average sales volumes in September rose 1.3% year-over-year and slightly contracted from the 2.5% level in August. Our survey respondents tend to cater more towards the do-it-yourself painter (DIY) and given existing home sales, which tends to correlate higher with DIY sales than new construction, has grown 12% this year we expect results to continue to trend positively. Overall, 62% of respondents witnessed an increase in volumes vs. only 23% that saw volumes decline, which averaged out to 1.3% volume growth and a net increase of 39%.

Price of Paint from Suppliers — Paint Prices Up vs. Last Year but Growth Slows
65% of contacts noted a year-over-year increase in the cost of a gallon of paint from suppliers in the month of September as our paint price index increased 1.4%. This compares to a year-over-year increase of 1.0% and 1.5% in August and July, respectively. Price increases issued by paint manufacturers in 2012 as a result of recovering raw material inflation are starting to anniversary and thus year-over-year price increases are becoming less pronounced – a trend that is likely to continue. We believe the trend of flat pricing will be sustained as 83% of respondents reported that there have been no price increase notifications issued from paint suppliers at this time.

Raw Materials — TiO2 Prices appear to be Bottoming Out
Throughout 2013, titanium dioxide (TiO2) has been on a downward trend but our research suggests a floor is being reached. In recent weeks a few grades of paint grade TiO2 have witnessed small price increases in the range of 1-3%. The success of these increases is yet to be determined however TiO2 inventories are beginning to become more balanced and as utilization rates increase, we would not be surprised to see successful price increases by the end of 2013. Propylene prices have been rebounding since April; however, they are still below highs seen in February and actually began to tick down over the past couple of weeks.

Paint Inventory Levels — Inventories Remain Fairly Balanced
75% of respondents stated that current paint inventory levels at their location are in-line with current business conditions and they are maintaining current levels of purchasing. Only 10% of contacts noted that current paint inventory levels are too low while the remaining 14% of participants revealed that paint inventory levels were too high in September. Overall, we believe that inventories are well-aligned with current demand levels.

3 Month Outlook — Outlook Positive with a Hint of Seasonality
Our proprietary Architectural Coatings Outlook Index reached a 0.35 for the month of September compared to a level of 0.57 in August. Note that the highest possible reading is +2 (indicating all contacts have a “very positive” outlook) and the lowest possible reading is -2 (indicating all contacts have a “very negative” outlook. A reading of 0.35 is a positive translation (albeit at a slightly lesser rate than August) as it indicates that contacts within the industry maintain a favorable outlook but expect general slowdowns in-line with seasonal patterns over the near term now that the more robust summer months have come to an end.

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